Background and Summary

Frustrating traffic jams are well-known to commuters. Quite surprising, however, is
the cost of congestion. A study by the Texas Transportation Institute estimates the time and
fuel costs to be $78.2 billion in 2005, up from $73.1 billion in 2004. In urban areas there are
the addtional problems of poor air quality and parking. While a better transportation infrastructure
and road usage are essential to mitigate the problem, they will not be sufficient. As Vickrey
has noted remarkably early, this is because of the “tragedy of the commons” effect: a
free public good will tend to suffer from overuse. Given the gravity of the problem in recent
times, several cities have started imposing monetary charges to combat urban congestion.
In a congestion charging scheme, drivers pay a fee for entering a “congested zone” during
peak hours. This method is most notably practiced in London, Singapore and Stockholm.

Our approach contrasts with congestion charging in a crucial way. We view “the right
to congest” as a tradeable commodity: those who use the roads at congested times pay
those who stay away during such times. This direct transfer of money from the congestor
to the decongestor is incentive compatible (i.e., it invites the participation of congestor and
decongestor alike): the congestor encounters less traffic and the decongestor is adequately
compensated. The goal is to wean commuters away from congestion-causing behavior by incentivizing them
to commute at less congested times and to use public transportation.

This site contains information on projects which have applied the incentive approach
for decongesting the road.